U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC..
(Name of small business issuer in its charter)
FLORIDA 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 ALDERMAN DRIVE, SUITE 200, ALPHARETTA, GEORGIA 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 667-6088
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date 18,301,907 shares of Common
Stock as of April 7, 1997.
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB
FOR QUARTER ENDED MARCH 31, 1997
INDEX
Page
----
Consolidated Balance Sheet as of March 31, 1997........................ 1
Consolidated Income Statements for the Three
Months ended March 31, 1997 and March 31, 1996.................... 2
Consolidated Statements of Cash Flows for the
Months ended March 31, 1997 and March 31, 1996.................... 3
Consolidated Statements of Shareholders' Equity for the
Three Months ended March 31, 1997 ................................ 4
Notes to Consolidated Financial Statements............................. 5
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition, Liquidity and Capital Resources, and Results of
Operations........................................................ 10
Signatures............................................................. 12
Part II - Item 6. Exhibits............................................. 13
2
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
Current Assets
Cash $ 14,767
Accounts receivable, net of Allowance of $226,632 411,273
Due from stockholders 325,000
Inventory 474,186
Other current assets 98,609
----------
Total Current Assets 1,323,835
Property and equipment, net of accumulated
depreciation of $199,362 4,038,526
Other Assets 1,443,195
----------
TOTAL ASSETS $ 6,805,556
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Accounts payable $ 3,077,860
Accrued expenses 1,215,772
Current portion of Capital Lease Obligations 8,451
Notes Payable 523,467
----------
Total Current Liabilities 4,825,550
Long-Term Liabilities
Notes Payable 7,584,235
Long-term Capital Lease Obligations, net of current
portion 28,374
----------
Total Long-Term Liabilities 7,612,609
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 25,000,000 shares;
issued and outstanding 18,301,907 73,191
Additional paid-in capital 2,908,875
Accumulated deficit (8,614,669)
----------
Total Stockholders' Equity Deficiency (5,632,603)
----------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY DEFICIENCY $ 6,805,556
----------
----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Three Months Ended
March 31
1997 1996
TOTAL REVENUES: $ 1,609,006 $ 339,765
---------- ---------
OPERATING EXPENSES:
Communication and Marketing Services 1,680,009 243,020
General and Administrative 2,063,452 769,658
---------- ---------
Total Operating Expenses 3,743,461 1,012,678
---------- ---------
Operating Loss (2,134,455) (672,913)
---------- ---------
OTHER INCOME (EXPENSES):
Interest Expense (149,936) (6,606)
Other Income 6,361 7,419
---------- ---------
NET LOSS $(2,278,030) $(672,100)
---------- ---------
---------- ---------
NET LOSS PER SHARE (.13) (.07)
---------- ---------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 17,497,988 10,211,824
---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (2,278,030) (672,100)
----------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 242,876 5,340
Stock issued for services 45,413 -
Changes in assets and liabilities:
Decrease (increase) in:
Receivables and amounts due from
stockholders (557,947) (4,210)
Inventories 5,136 (11,646)
Other current assets 160,739 (5,706)
Increase (decrease) in:
Accounts payable and accrued expenses 2,481,954 (309,418)
Capital lease obligation (10,406) -
----------- ---------
Total adjustments 2,367,765 (293,196)
----------- ---------
Net cash provided (used) from operating activities 89,735 (378,904)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Goodwill (147,182) -
Acquisition on property and equipment (997,556) (31,276)
----------- ---------
Net cash used in investing activities (1,144,738) (31,276)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 100,000 115,800
Proceeds from issuance of common stock 900,000 93,359
----------- ---------
Net Cash Provided by Financing Activities 1,000,000 209,159
----------- ---------
Net Decrease in Cash (55,003) (201,021)
Cash at Beginning of Period 69,770 192,976
----------- ---------
Cash at End of Period $ 14,767 $ (8,045)
----------- ---------
----------- ---------
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Details of acquisition:
Fair value of assets acquired $ 92,186
Liabilities assumed $241,368
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
MARCH 31, 1997
(UNAUDITED)
Common Stock Issued Additional Total
----------------------------- Paid-In Shareholders'
Shares Par Value Capital Deficit Equity
---------------------------------------------------------------------------------
Balance, December 31, 1996 16,242,386 $ 64,953 $1,971,700 $(6,336,639) $(4,299,986)
Shares Issued to Consultants 32,051 128 23,910 - 24,038
Exercise of Warrants 2,100,000 8,400 916,600 - 925,000
Compensation Earned 40,000 160 1,840 - 2,000
Cancellation of shares previously granted (112,500) (450) (5,175) - (5,625)
Net Loss - - - (2,278,030) (2,278,030)
---------- -------- ---------- ---------- -----------
Balance, March 31, 1997 18,301,937 $ 73,191 $2,908,875 $(8,614,669) $(5,632,603)
---------- -------- ---------- ---------- -----------
---------- -------- ---------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries, as well as less than majority owned entity
which it controls. Significant intercompany accounts and transactions have
been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Purchased Property and equipment are recorded at cost, and depreciated using
the straight-line method over the estimated useful lives of the assets,
commencing when the assets are installed or placed in service. The estimated
useful lives are ten years for furniture and fixtures, seven years for office
equipment, and five years for computer equipment. The cost of installed
equipment includes expenditures for installation. Capital Leases are
recorded at lower of fair market value or the present value of future minimum
lease payment. Assets recorded under capital leases and leasehold
improvements are depreciated over the shorter of their useful lives or the
term of the related lease.
INVENTORY
Inventory consists of promotional and training materials used in the Vision
21 marketing program and products sold through the Company's Collectible
Calling Card Business. These amounts are recorded at the lower of cost
(first-in, first-out) or market value.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
the net identifiable assets acquired from the Collectible Calling Card
Business acquisition in November 1996 and Internet Service Business
acquisition in January 1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt
as of January 1, 1996. Under SFAS 123, the Company recognizes compensation
expense for all stock-based compensation, using a fair value methodology.
This policy is consistent with the company's prior accounting.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect
the reported amounts of assets are, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results may differ from these estimates. Significant estimates in the
financial statements include the assumption the Company will continue as a
going concern. The assumption could change in the near term.
INTERIM INFORMATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01
of Regulation S-X promulgated by the Securities and Exchange Commission.
Such financial statements do not include all disclosures required by
generally accepted accounting principles for annual financial statement
reporting purposes. However, there has been no material change in the
information disclosed in the consolidated financial statements included in
the Company's Form 10-KSB for the year ended December 31, 1996, except as
disclosed herein. Accordingly, the information contained herein should be
read in conjunction with the consolidated financial statements and related
disclosures contained in the Company's Form 10-KSB for the year ended
December 31, 1996. The accompanying financial statements reflect, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods
presented.
The periods presented are the three months ended March 31, 1997 and 1996,
respectively. Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
2. OTHER ASSETS
Other assets consist of the following at March 31, 1997
Deposit for purchase of equipment...................... $ 650,000
Prepaid debt financing, net of accumulated
amortization......................................... 377,857
Goodwill, net of amortization of $60,994............... 415,338
---------
$1,443,195
---------
---------
3. NOTES PAYABLE AND LITIGATION
Notes payable consist of the following at March 31, 1997
Current:
18% note payable, due on demand.................... $ 273,467
Various floating rate notes, due on demand......... 250,000
---------
$ 523,467
---------
---------
Long Term:
10% convertible debentures, due on April 3, 1998... $ 350,000
12% note payable, due February, 1998, secured by
building......................................... 1,830,000
Floating rate convertible debentures, due on
demand........................................... 5,404,235
---------
$7,584,235
---------
---------
During April 1996, the Company sold $250,000 of various floating rate notes.
These notes are payable on demand and have been secured by the Company's rights
under a long distance service agreement entered into in the prior year.
On April 3, 1996, the Company sold $2,500,000 of 10% convertible debentures to a
group of investors. The convertible debentures are payable in full two years
from the date of sale. Holders of the convertible debentures may convert
principal and accrued interest all or in part into Common Stock after April
1996. On January 10, 1997, the debentures were amended to reflect a total
amount of $350,000, convertible into shares of Common Stock at a revised
conversion price of $0.50, plus piggyback registration rights.
From July 30, 1996 through August 28, 1996, the Company sold $6,683,333 of
certain 3% convertible debentures at a discount with an effective interest rate
of approximately 14.5%. The convertible debentures are due August 15, 1998 and
may be paid in cash or in common stock.
During the period from November 15, 1996 through January 3, 1997, the Company
received a number of requests for conversion of the par principal amount plus
accrued interest of the 3% convertible debt into unrestricted shares of Common
Stock. The Company has taken the position that the debenture holders have not
complied with the terms of the Subscription Documents and accordingly has not
issued shares pursuant to the requests.
On January 22, 1997, two of the three debenture holders, (collectively,
"Plaintiffs") filed a complaint in the United States District Court for the
Northern District of Georgia, Atlanta Division (Civil Action No. 1 97-CV-0179)
against the Company. The complaint alleges claims for breach of contract and
for declamatory and injunctive relief with respect to the requests of the
Plaintiffs to convert $333,000 and $500,000, respectively, par principal amount
of Debentures into shares of the Company's Common Stock pursuant to the
Subscription Documents. The complaint seeks injunctive relief against the
Company to issue the shares to Plaintiffs in accordance with the conversion
requests, and for an unstated amount of compensatory damages, attorney's fees,
costs and expenses. If the plaintiffs are successful, they could become
significant holders of the Company's Common Stock, diluting the interest of
existing common shareholders.
The Company has filed an answer with affirmative defenses and counterclaims to
the above action. There can be no assurances as to the resolution of these
matters.
During February, 1997, the Company renegotiated the $1,830,000 short-term debt
on the building which houses its corporate headquarters. The new note bears
interest at 12%. Interest only is payable monthly through February 1998.
Monthly principal and interest payments are due commencing March 1998. The note
is due February, 1999, with an optional extension of 11.5 months.
Maturities of long-term debt are as follows:
1997 $ -
1998 5,482,562
1999 1,810,648
---------
$7,293,210
---------
---------
4. COMMITMENTS
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
The Company's long distance and marketing activities are subject to certain
federal and state regulations. The Company is involved in various regulatory
matters as well as lawsuits incidental to its business. In the opinion of
management, these regulatory matters and lawsuits in the aggregate will not
have an material adverse effect on the Company's financial position or the
results of operations of future periods.
On July 15, 1996, the Company entered into an agreement to purchase enhanced
switching equipment for $2,600,000. As of March 31, 1997, $650,000 has been
paid.
During 1996, the Company entered into various agreements for communication
services which commit approximately $16,860,000 over the next six years as
follows:
1997 $ 2,115,000
1998 4,620,000
1999 4,500,000
2000 3,000,000
2001 and thereafter 2,625,000
----------
$16,860,000
----------
----------
5. SUBSEQUENT EVENTS
The Company entered into an agreement (the "Agreement"), on April 12, 1997, as
amended on May 1, 1997, with a major distributor of prepaid calling cards (the
"Distributor") pursuant to which the Distributor will purchase long-distance
telecommunications facilities from the Company to market prepaid telephone
calling cards. The term of the Agreement is twenty-four months, plus a ramp-up
period during which it is anticipated that the Company will take the necessary
steps to insure that its telecommunication switches and lines have the necessary
capacity to provide the volume and types of telecommunications services expected
to be purchased on a regular basis by the Distributor and the Distributor will
build up its demand for telecommunications services to the level of volume
called for in the Agreement (the "Ramp-Up" period). The Agreement shall
automatically renew for consecutive periods of one year unless one party gives
written notice to the other party, no later than six months before expiration of
the Agreement, of its intention to terminate.
At the beginning of the Ramp-Up period, the Distributor will make a deposit with
the Company against the costs of telecommunications traffic for the first month
of the Agreement. As of May 12, 1997, the Distributor has deposited
approximately $500,000 with the Company. After completion of the Ramp-Up
period, when the Distributor, for any month, purchases from the Company at least
$10 million in telecommunications services, the Distributor shall then be
obligated to pay the Company, for each subsequent month, a minimum of $10
million for telecommunication services.
Simultaneously with execution of the Agreement, the Company and the Distributor
entered into a Marketing Consulting Agreement pursuant to which the Distributor
will provide certain consulting services to the Company in return for the
granting of certain options for purchase of shares of the Company's Common
Stock, based on cedrtain performance criteria.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
The Company's cash decreased during the three months ended March 31, 1997.
Principal sources of funds consisted of (i) borrowings on notes payable
($100,000) and (ii) proceeds from the issuance of common stock ($900,000). The
primary uses of funds consisted of (i) additions to property and equipment
($997,556).
During the first quarter, the Company continued to improve the merchandise and
product offering for Vision 21 and began selling wholesale international time to
other Carriers. Based on the Company's positive feedback on these new products,
the Company had an increase in Accounts Receivable.
The increase in property and equipment reflects the acquisition of additional
telecommunications equipment purchased in conjunction with the Company's
nationwide network.
The increase in accounts payable and accrued expenses resulted from the
Company's cash position. The increase in notes payable and accrued interest
represents the amortization of debt discounts from various previously issued
demand notes and convertible debentures. In addition, the Company issued an
additional $100,000 of convertible debentures during the same three months
ended.
The Company received $1,000,000 from the issuance of common stock. The majority
of these proceeds were received from the exercise of various options at prices
ranging from $.40 to $.50 per share. These funds have been used for working
capital purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations principally through the
sale of equity and debt securities and through funds provided by operating
activities.
As of March 31, 1997, the Company had notes payable totaling $8,107,702, accrued
but unpaid expenses totaling $1,215,772, and current accounts payable totaling
$3,077,860. As of March 31, 1997, the Company's negative cash flow is
approximately $450,000 per month. Although management of the Company
anticipates an improvement in the Company's cash flow position from increased
revenues from one or more of its businesses, no assurance can be given to that
effect. Even if such increases were to occur, management believes that the
Company can sustain operations only by the infusion of substantial amounts of
financing. No assurances can be given that such financing will be available at
terms acceptable to the Company, or at all. Inability to obtain such financing
could force the Company to cease all business operations.
In the Company's 10-KSB filing on April 15, 1997, the Company's auditors
included an explanatory paragraph in their Report of Independent Certified
Public Accountants to the effect
that recovery of the Company's assets are dependent upon future events, the
outcome of which is indeterminable, and that the successful completion of the
Company's development program and its transition, ultimately, to the
attainment of profitable operations is dependent upon obtaining adequate
financing to fulfill its development activities and achieving a level of
sales adequate to support the Company's cost corporate infrastructure. There
can be no assurances that such financing can be completed on terms favorable
to the Company or at all, or that the business of the Company will ever
achieve profitable operations.
RESULTS OF OPERATIONS
The Company seeks to manage its business to enhance long-term growth and
shareholder value. The Company also seeks to utilize financial leverage, equity
funding, and cash flow generated from operations to support capital expenditures
and possible future acquisitions. The Company intends to be an acquirer of new
technologies that would (i) result in an acceptable rate of return on such long
term investments and (ii) provide adequate opportunity to effectively implement
the Company's operating strategies.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
OPERATING (LOSS)
Communication and marketing services and related expenses increased for the
three months ended March 31, 1997 compared to the prior year as the Company is
beginning to recognize the benefits associated with refining the Vision 21
compensation plan as well as revenue associated with it's international
wholesale carrier business.
General and administrative costs increased for the three months ended March 31,
1997 compared to the same period in the prior year, as the Company has been
implementing the initial phase of the Company's Enhanced Service Platform. The
Company does not anticipate incremental increases in general and administrative
costs in conjunction with anticipated future revenue growth.
OTHER INCOME (EXPENSES)
Interest expense increased for the three months ended March 31, 1997 compared to
1996 due to increases in notes payable. The Company will continue to explore
the most effective utilization of financial leverage as well as alternative
means of raising additional capital to enhance long-term growth and maximize
shareholder value.
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Registrant)
/s/ Roderick A. McClain
- ------------------------------------------
Roderick A. McClain, President & CEO
Date: May 15, 1997
/s/ Herbert S. Perman
- ------------------------------------------
Herbert S. Perman, Chief Financial Officer
Date: May 15, 1997